Drug provider accused of fraud

Medco says the federal complaint focuses on incidents that
have been corrected.

The Justice Department on Monday accused Medco Health Solutions
Inc. of defrauding the federal government and its employees who
received prescription drug shipments from the company's mail-order
pharmacies, including two facilities in Tampa.

The criminal complaint against Medco, filed in Philadelphia by
U.S. Attorney Patrick L. Meehan, alleges fraudulent practices that
include destroying prescriptions that were not filled promptly,
switching drugs for patients without consulting a physician and
sending patients fewer pills than were paid for by their health
insurance.

At Medco's facility in Sabal Park, according to the complaint, a
top supervisor in 1999 and 2000 encouraged employees to ignore
prescriptions that had not been filled within 14 days. When the
practice came to light, it said, the supervisor, who was not
identified, was dismissed with a generous severance package and has
since refused to be questioned by federal investigators.

Medco executives responded angrily to the government's charges.
David Machlowitz, general counsel, said: "The allegations are false,
overblown or reflect an isolated incident here or there where
employees did not do what they should have done. And when we found
out about it, we punished them."

Although the government's case involves only federal employees
and dependents who were insured by Blue Cross/Blue Shield, it could
have an impact on millions more Americans who receive their
prescription drugs through Medco or one of the other major pharmacy
benefit management companies.

Like other pharmacy benefit managers, Medco, which until Sept. 20
was a subsidiary of Merck, operates as a middleman between the
health insurer and patients covered by the plan. It obtains drugs at
a discount from manufacturers, fills prescriptions and collects
compensation from the insurer and the patient.

Critics allege that these companies steer patients away from
generics and toward drugs on which they make the highest profit. In
the case of Medco, the government said, patients and physicians are
often coerced into using Merck's popular, high-priced brand name
drugs such as Zocor, Mevacor, Vasotec, Cozaar, Pepcid and Vioxx.

Maury Herman, an Atlanta lawyer, said allegations in the Justice
Department complaint are consistent with numerous lawsuits his firm
has brought on behalf of insured workers and health care plans in
cities from New York to California. The suits accuse several major
pharmacy benefit managers, including Medco, of maximizing profits at
the expense of patient care.

Herman said the allegations also should serve as a warning to
Congress, which is considering legislation that would put
prescription drug distribution for Medicare patients in the hands of
these companies. He said the companies are "double-dealing."

The case against Medco arose from claims filed under the False
Claims Act. That means the allegations were brought to the Justice
Department by Medco employees who stand to benefit financially if
their case succeeds in court.

Much of the complaint focused on activities at Medco's Tampa II
facility in Sabal Park, where employees apparently could not fill
all the prescriptions within the contractual 14-day period. The
unfilled prescriptions were generally garbled ones that would have
required Medco workers to call physicians for clarification.

In those cases, the government said, the still-valid prescription
was canceled and then frequently destroyed. Whenever representatives
of Blue Cross/Blue Shield came to visit the facility, it added, the
canceled prescriptions were scooped up and hidden in a semitrailer
parked behind the Tampa II plant.

In January 1999, the company put the Tampa II facility under the
supervision of a new vice president/general manager, a woman who was
not a pharmacist. She previously had been accused of improperly
canceling prescriptions at the Tampa I facility, which has since
closed. At Tampa II, she allegedly imposed productivity goals that
forced employees there to cancel unfilled prescriptions.

The woman was dismissed two years later with a year's severance
pay, full benefits and a $40,000 bonus, according to the government.
In exchange, the complaint alleges, she agreed to take full
responsibility for all improper conduct at Tampa II.

The company said she was fired when it was discovered she had
altered drug records after hours to make it appear the prescriptions
had been fulfilled within the time promised.

"This was not behavior in any way authorized or known to the
company," Machlowitz said. "Though she was fired, she always said
she did this on her own."

He said the company investigated the issue and disclosed the
incident to Blue Cross/Blue Shield.

"We paid $16,000 or so in contract penalties and they still
renewed the contract," Machlowitz said. "We wanted to do the right
thing."

Under Medco contracts with insurers, patients cannot be switched
from one drug to another without the approval of the physician who
wrote the prescription. But at all Medco's facilities, the
government alleges, employees regularly switched drugs for patients
to meet a quota. They then allegedly fabricated records indicating
the physicians had been contacted.

In addition, Medco customer service representatives were accused
of giving false information to patients who complained they had not
received their drugs or had received a different drug from the one
prescribed by their doctor.

The government said Medco also did little or nothing to correct
problems with machinery that often put too few pills into the
bottles - a practice known as "shorting."